Competition or “coopetition” in the cloud – 2 steps for success

miron_mizrahi.jpgBy Miron Mizrahi

 

Miron Mizrahi has had a career spanning more than 20 years in the software industry. In recent years he served as the WW Solution Lead for Business Service Management (BSM) as well as Converged Infrastructure for HP Software Professional Services, where he is now a Portfolio Strategy Lead.

 

Recent analyst research has found that lines-of-business (LOBs) are adopting cloud services 2.5 times faster than IT is. What is enabling this higher rate of adoption? The answer should, by now, be clear to anyone who has been watching this space – LOBs now have options. They can get e-mail services from Google, infrastructure from Amazon.com and a slew of SaaS solutions from a selection of vendors.

 

Prior to the emergence of cloud computing, IT was by and large a monopoly, whether by corporate directive or lack of other viable alternatives. Alternatives did exist. LOBs could turn to “shadow IT” and create their own IT teams. But merely creating duplicate versions of traditional IT made no sense. However, with cloud, LOBs now have the ability to redefine and re-adopt “shadow IT,” and they are taking advantage of it. Redefine, because it is not the same IT as traditional IT. LOB IT can now act as a service sourcing and brokering function. When appropriate (or mandated by corporate or regulatory authorities) it continues to procure IT services from internal IT, but when it makes sense they simply procure services from whatever external provider offers them the best deal. The competition has arrived. IT, however, can choose to turn competition into “coopetition” and in the process become itself more competitive.

 

Assessing the competition

Who is IT competing against? And is it really a competition? IT is not competing against shadow IT since shadow IT is just the broker. IT is competing against cloud providers – the Microsofts and Salesforce.com’s of the world. These organisations differ from IT in one fundamental aspect – they exist to make money, in other words they are a P&L. This has several implications:

 

  • They have sales & marketing functions. IT does not.
  • They have a good understanding of their cost structure for delivering their services. IT does not.
  • They know how to price their services. IT does not.
  • They are free to choose which services to offer. IT is not.

This is not all bad news, since being a P&L drives efficiencies. As a result, many providers are better than IT at certain things. So while IT is now beginning to face competition from previously unimagined directions and from more efficient competitors, it can turn this into an advantage. By partnering with these providers, IT can leverage their efficiencies while retaining control over service delivery.

 

Here is how.

 

Step 1: Get serious about performance management

The first, and most fundamental, decision IT needs to make is how serious it is going to get about performance management. Unless CIOs commit to running IT like a business, they may be left with not much to run. Running IT like a business seems like an overused, out-of-date idea. But the reality is that prior to cloud, that was all it was – an idea. A very good and sensible idea, but one which – in the absence of competition – lacked a sense of urgency. And there is nothing like competition to create an imperative. With cloud in the mix, the idea of running IT like a business suddenly morphed from “this is how IT will improve” to “this is how IT will survive.”  Unless IT is run like a business, it will be forced to compete rather than “coopete” with cloud providers. Unless IT is run like a business there is a high degree of probability IT will not fare well in such a competition, because such providers are businesses.

 

Every successful business leader has a performance management solution, most CIOs do not. Whether it is size of pipeline, number of units shipped or time to process claims – every business has a set of key performance indicators (KPIs) reflected in their performance management solution, and it is what business leaders use to drive decision making, increase their value and remain competitive. Without performance management, IT is flying blind and will find it very hard to remain competitive. The time to implement IT performance management is now.

 

Step 2: Focus on core value

The second step needs to be an evolution of IT delivery into a hybrid model. IT needs to shift its model and focus on its core value proposition, which is – it is the department best positioned to serve the corporation’s technology needs.

 

  • Unlike LOBs it has economies of scale.
  • Unlike LOBs it has the corporation’s, not the individual LOB’s interests in mind.

However, IT also needs to realize that it cannot be the best at everything so it should partner with cloud and other providers when these present a better, more efficient option.

 

IT should transform into a service broker and integrator. This means that IT should

 

The meshing of these two steps will yield an IT organization that is focused, performance driven and competitive. IT will remain viable and relevant and will continue to serve the best interest of the corporation – able to be the sole provider of services when that makes sense and able to integrate cloud services (whether public, private or hybrid) as necessary. Which is why this is not the CIO’s problem to solve alone. There is no business without IT, and for a business to compete they need their IT department to be competitive too.

 

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Labels: Cloud
Comments
Nadhan | ‎08-11-2012 02:00 PM

Like the two steps you have detailed for coopetition in the cloud, Miron.  A key takeaway line for me from your post is "Business of IT is a very good and sensible idea, but one which – in the absence of competition – lacked a sense of urgency."  Which is why CIOs have to integrate the business of IT to combat its consumerization.

 

Connect with Nadhan on: Twitter, Facebook, Linkedin

DavidLevin ‎08-26-2012 01:06 PM - edited ‎08-26-2012 01:09 PM

This is a fantastic analysis and call for action for IT Organizations around the globe. Each and every IT leader is at a cross road:

First option is it to run IT as a business, build higher level services, and provide business value by utilizing economy of scale - this direction will get IT closer to the business and may increase its overall impact on the enterprise.

Second option is to choose stagnation and watch how IT is stripped off its influence, looses innovation budget, and focused on KTLO related operations.

IT leaders - this is a wake up call!

MironMizrahi | ‎08-27-2012 06:10 PM

Thanks David and Nadhan for your comments. yes ... running IT like a business needs to now become more than a slogan. however, in quite a few articles I have read, there seem to be an opinion that this is the CIO's job. true - he/she is ultimately on the hook, but a business without an effective IT department is not good for anyone. So the entire leadership needs to make it their mission

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